GE Nuovo Pignone SPA, Gurgaon V. ADIT, New Delhi

ITA 5542/DEL/2011

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3625 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G K DHALL
• Keywords: Business income; Opportunity of being heard
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SH.R.S.SYAL, VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NOS.5741/DEL/2010 & 703 TO 708/DEL/2011 (ASSESSMENT YEARS: 2007-08 & 2001-02 TO 2006-07) ITA NO.5542/DEL/2011 (ASSESSMENT YEAR: 2008 -09) APPELLANT BY SH. SACHIT JOLLY, ADV. RESPONDENT BY SH. G .K. DHA L L , CIT DR DATE OF HEARING 31. 0 1 .201 8 DATE OF PRONOUNCEMENT 31 .0 1 .201 8 ORDER PER R.S. SYAL, VICE PRESIDENT [[ THESE EIGHT APPEALS RELATE TO THE A.YS. 2001-02 TO 2008-09. SINCE COMMON ISSUES ARE RAISED IN THIS BATCH OF APP EALS, WE ARE THEREFORE, PROCEEDING TO DISPOSE THEM OFF BY THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. GE NUOVO PIGNONO SPA, AIFACS BUILDING, 1, RAFI MARG, NEW DELHI-110001. PAN-AABCG3212A VS ADIT, CIRCLE-1(2), INTERNATIONAL TAXATION, NEW DELHI. (APPELLANT) (RESPONDENT) GE NUOVO PIGNONE SPA, BUILDING NO.71, 6 TH FLOOR, DLF CYBER CITY, PHASE-III, GURGAON-122002. PAN-AABCG3212A VS ADIT, CIRCLE-1(2), INTERNATIONAL TAXATION, NEW DELHI. (APPELLANT) (RESPONDENT) ITA NOS.5741/DEL/2010, 5542 & 703 TO 708/DEL/2011 PAGE | 2 2. THE BACKGROUND OF THESE APPEALS IS THAT THE TRIB UNAL, VIDE ITS COMBINED ORDER DATED 27.01.2017, DISPOSED OF TH ESE EIGHT APPEALS IN A BATCH OF 138 APPEALS. IN FACT, 139 AP PEALS WERE FIXED. BOTH THE SIDES ELABORATELY ARGUED THE APPEA L IN THE CASE OF GE ENERGY PARTS INC. VS ADIT (ITA NO.671/DEL/2011 F OR THE ASSESSMENT YEAR 2001-02). IT WAS A COMMON SUBMISSI ON THAT THE FACTS AND CIRCUMSTANCES OF THE REMAINING 138 AP PEALS, INCLUDING THE INSTANT 8 APPEALS, WERE SIMILAR TO TH OSE OF GE ENERGY PARTS INC. THE TRIBUNAL DISPOSED OFF THE AP PEAL OF GE ENERGY PARTS INC. AS A LEAD ORDER PASSED ON 27.01.2 017. THE REMAINING 138 APPEALS WERE ALSO DISPOSED OFF ON THE SAME DAY BY FOLLOWING THE VIEW TAKEN IN THE LEAD ORDER HOLDING THAT THE INITIATION OF RE-ASSESSMENT WAS VALID; FIXED PLACE AS WELL AS AGENCY PE OF GE OVERSEAS ENTITIES WAS ESTABLISHED IN INDIA ; ATTRIBUTION TO THE INCOME OF PE WAS TO BE DONE AT 2.6% OF THE SALE S MADE BY GE OVERSEAS IN INDIA; AND INTEREST U/S 234B WAS NOT CH ARGEABLE. THE ASSESSEE PREFERRED APPEALS BEFORE THE HON'BLE H IGH COURT IN RESPECT OF THE INSTANT EIGHT MATTERS, CONTENDING TH AT THE TRIBUNAL OVERLOOKED THE GROUNDS RAISED IN ITS APPEALS REGARD ING INSTALLATION OF PE, AD-HOC ATTRIBUTION BETWEEN SALES AND SERVICE S AND TAXABLE ITA NOS.5741/DEL/2010, 5542 & 703 TO 708/DEL/2011 PAGE | 3 INCOME AS FEES FOR TECHNICAL SERVICES. THE HON'BLE HIGH COURT, VIDE ITS ORDER DATED 13.09.2017, HAS REMITTED THE M ATTER TO THE FILE OF THE TRIBUNAL FOR ADJUDICATION OF GROUNDS RE GARDING INSTALLATION OF PE; AD HOC ATTRIBUTION BETWEEN SALE S AND SERVICES; AND TAXABILITY OF INCOME AS FEES FOR TECHNICAL SERV ICES. 3. DURING THE COURSE OF INSTANT PROCEEDINGS BEFORE THE TRIBUNAL, THE LD. AR FAIRLY CONCEDED THAT THE ISSUE S RESTORED BY THE HON'BLE HIGH COURT FOR FRESH ADJUDICATION WERE, IN FACT, NOT ARGUED BY THE ASSESSEE BEFORE THE TRIBUNAL IN THE F IRST ROUND. IT WAS ALSO ADMITTED THAT ONLY THE CASE OF GE ENERGY P ARTS INC. WAS ARGUED BY BOTH THE SIDES AND ALL THE REMAINING 138 APPEAL FILES, INCLUDING THE EIGHT APPEALS UNDER CONSIDERATION, WE RE NOT EVEN OPENED ON THE COMMON UNDERSTANDING THAT THE FACTS A ND CIRCUMSTANCES OF THE REMAINING APPEALS WERE SIMILAR . NOW, SINCE THE MATTER HAS BEEN SENT BACK BY THE HONBLE HIGH C OURT TO THE TRIBUNAL FOR DECIDING THE ABOVE REFERRED THREE ASPE CTS, WE PROCEED TO DEAL WITH THE SAME BY HIGHLIGHTING THE FACT THAT THESE ISSUES WERE NOT ARGUED BY THE LD. AR DURING THE ORIGINAL R OUND OF PROCEEDINGS BEFORE THE TRIBUNAL. ITA NOS.5741/DEL/2010, 5542 & 703 TO 708/DEL/2011 PAGE | 4 4. WE ESPOUSE THE FIRST ISSUE SENT BACK BY HON'BLE HIGH COURT REGARDING INSTALLATION OF PE. THE LD. AR WAS FAIR ENOUGH NOT TO PRESS THIS ISSUE. IT WAS SUBMITTED THAT THE TRIBUN AL HAS ALREADY HELD THAT THE PE IN THE NATURE OF FIXED PLACE AS WE LL AS AGENCY WAS CREATED AND AS SUCH, THERE WAS NO POINT IN ARGUING ON THE INSTALLATION PE. IN VIEW OF THE CONCESSION OF THE LD. AR, WE DISMISS THIS ISSUE AS NOT PRESSED BY THE LD. AR. 5. NOW, WE TURN TO SECOND ASPECT OF AD HOC ATTRIBUT ION OF INCOME BETWEEN SALES AND SERVICES. 6. SUCCINCTLY, THE FACTUAL MATRIX OF THIS ISSUE IS THAT THE TRIBUNAL ESTIMATED INCOME @ 2.6 % ON TOTAL SALES FO R WORKING OUT THE PROFITS ATTRIBUTABLE TO THE PE IN INDIA. THIS ORDER WAS PASSED IN THE CONTEXT OF GE ENERGY PARTS INC., WHICH ASSES SEE WAS ENGAGED IN THE SUPPLY OF TURBINES ALONE AND NOT IN SERVICES OF INSTALLATION ETC. THE LD. AR CONTENDED THAT THE ASS ESSEE UNDER CONSIDERATION, APART FROM SUPPLYING EQUIPMENTS, HAS ALSO RENDERED SERVICES AND HENCE SEPARATE ADJUDICATION I S REQUIRED IN SO FAR AS INCOME FROM SERVICES IS CONCERNED. IT W AS POINTED OUT THAT THE ASSESSEE TREATED SERVICE INCOME AS PART OF ITS PROFITS FOR ITA NOS.5741/DEL/2010, 5542 & 703 TO 708/DEL/2011 PAGE | 5 THE ASSESSMENT YEARS 2001-02 TO 2004-05 AND IN THE ABSENCE OF ANY PE, IT WAS INFERRED THAT NO INCOME WAS TAXABLE. HOWEVER, FOR THE ASSESSMENT YEARS 2005-06 & 2006-07, THAT IS, T HE PERIOD AFTER THE DATE OF SURVEY CARRIED OUT BY THE INCOME TAX DEPARTMENT, THE ASSESSEE OFFERED SOME INCOME FROM S ERVICE AS `FEES FOR TECHNICAL SERVICES CHARGEABLE TO TAX AT GROSS LEVEL @ 20%. HOWEVER, FOR THE ASSESSMENT YEARS 2007-08 TO 2008-09, AGAIN NO SEPARATE INCOME FROM SERVICES WAS OFFERED AND THE ENTIRE REVENUE WAS CONSIDERED AS BUSINESS PROFITS. WE FIND THAT THE ASSESSING OFFICER COMPUTED 8.68% OF TOTAL INVOI CE VALUE AS RELATABLE TO THE SERVICES, ON THE BASIS OF THE ASSE SSEES DECLARATION OF INCOME FROM SALE AND SUPPLY FOR THE A.YS. 2005-06 AND 2006-07. IN THE ABSENCE OF THE ASSESSEE FURNIS HING ANY DETAILS OF SERVICE INCOME FOR THE OTHER YEARS, NAME LY, THE ASSESSMENT YEARS 2001-02 TO 2004-05 & 2007-08 TO 20 08-09, THE ASSESSING OFFICER APPLIED SUCH RATE OF 8.68% TO THE TOTAL INVOICE VALUE FOR OTHER YEARS AND COMPUTED SERVICE INCOME, WHICH WAS TAXED AS FEES FOR TECHNICAL SERVICES. ITA NOS.5741/DEL/2010, 5542 & 703 TO 708/DEL/2011 PAGE | 6 7. WE HAVE NOTED ABOVE THAT THE CASE OF GE ENER GY PARTS INC., AS DISPOSED OFF BY THE TRIBUNAL AS A LEAD CASE, HAD RECEIPTS ONLY FROM SUPPLIES IN WHICH IT HAS BEEN HELD THAT INCOME SHOULD BE ESTIMATED @ 2.6% OF THE SALES MADE BY THE GE OVERSE AS ENTITIES IN INDIA. THE ISSUE REGARDING SERVICE INCOME IN TH E HANDS OF THE INSTANT ASSESSEE, OR FOR THAT MATTER, ANY OTHER ASS ESSEE, WAS NOT ARGUED. THAT IS HOW, THE TRIBUNAL RECORDED A FINDI NG IN ALL OTHER CASES THAT THE INCOME OF THE PE SHOULD BE ATTRIBUTE D @ 2.6% OF THE `SALES MADE BY THE GE OVERSEAS ENTITIES IN IND IA. 8. THE LD. AR CONTENDED THAT THE ASSESSING OFFI CER FELL INTO ERROR BY CONSIDERING 8.68% OF TOTAL INVOICE VALUES AS `FEES FOR TECHNICAL SERVICES FOR OTHER YEARS AS WELL. ON A POINTED QUERY, IT WAS ADMITTED THAT THE RELEVANT AGREEMENTS WITH DIFF ERENT PARTIES FOR SUPPLYING AND INSTALLATION OF TURBINES, LEADING TO THE RAISING OF INVOICES DURING THESE YEARS, WERE NOT PROVIDED TO T HE ASSESSING OFFICER AND HENCE COULD NOT BE CONSIDERED. THE LD. AR MAINTAINED THAT IN SOME CASES OF SUPPLY, THE ASSESS EE MAY HAVE RENDERED SERVICES AS WELL AS, WHILE IN OTHER CASES, IT MAY NOT HAVE DONE SO. IT WAS FURTHER STATED, THAT THERE MAY HAVE BEEN THE ITA NOS.5741/DEL/2010, 5542 & 703 TO 708/DEL/2011 PAGE | 7 RENDITION OF SERVICES INDEPENDENT OF SUPPLY OF TURB INES. THE STAND OF THE ASSESSEE TAKEN FOR THE ASSESSMENT YEARS 2005 -06 & 2006- 07 WAS THAT SERVICE INCOME EARNED IS IN THE NATURE OF `FEES FOR TECHNICAL SERVICES. THIS SHOWS THAT THE ASSESSEE ITSELF TREATED INCOME FROM RENDITION OF SERVICES AS `FEES FOR TECH NICAL SERVICES, WHICH STOOD AT 8.68% OF TOTAL INVOICE VALUE. HOWEVE R, TO PRESUME THAT SUCH 8.68% WAS VALID FOR ALL OTHER YEARS AS WE LL CANNOT BE COUNTENANCED. THERE MAY BE YEAR-WISE HIGHER OR LOWE R INCOME FROM SERVICES DEPENDING UPON SEVERAL FACTORS. IN SU CH CIRCUMSTANCES, IT BECOMES NECESSARY TO EXAMINE EACH AND EVERY AGREEMENT OF SUPPLY BY THE ASSESSEE DURING SUCH YEA RS FOR DEDUCING INCOME FROM SERVICES. COPIES OF SUCH AGREE MENTS FOR SUPPLY AND/OR INSTALLATION OF TURBINES BY THE ASSES SEE HAVE NOT BEEN MADE AVAILABLE TO THE TRIBUNAL AND HENCE IT IS NOT POSSIBLE FOR US TO UNDERTAKE SUCH AN EXERCISE. 9. THE LD. AR SUBMITTED THAT THE ASSESSEE WOULD HAVE NO OBJECTION IF THE MATTER IS SENT BACK TO THE ASSESSI NG OFFICER FOR EXAMINING THE RELEVANT TERMS AND CONDITIONS OF ALL THE AGREEMENTS FOR THE YEARS UNDER CONSIDERATION FOR ASCERTAINING THE AMOUNT OF ITA NOS.5741/DEL/2010, 5542 & 703 TO 708/DEL/2011 PAGE | 8 SERVICE INCOME. NO SERIOUS OBJECTION WAS TAKEN BY THE LD. DR TO SUCH SUGGESTION. IN THESE CIRCUMSTANCES, AND MORE S PECIFICALLY WHEN COPIES OF ALL THE AGREEMENTS FROM WHICH INCOME WAS EARNED BY THE ASSESSEE DURING THE YEARS UNDER CONSIDERATIO N ARE NOT AVAILABLE WITH THE LD. AR FOR OUR EXAMINATION, WE C ONSIDER IT EXPEDIENT TO REMIT THE MATTER TO THE ASSESSING OFFI CER FOR CARRYING OUT A FRESH INVESTIGATION BY EXAMINING OF THE RELEV ANT AGREEMENTS LEADING TO THE RAISING OF INVOICES DURING THE YEARS UNDER CONSIDERATION. WE ORDER ACCORDINGLY AND DIRECT THE ASSESSING OFFICER TO EXAMINE WHETHER THE ASSESSEE UNDERTOOK A NY OBLIGATION TO RENDER SERVICES ALONG WITH THE SUPPLY OF TURBINE S ETC. OR ANY SERVICES WERE RENDERED INDEPENDENT OF SUPPLY. IF SU CH AN OBLIGATION WAS UNDERTAKEN OR SUCH SERVICES WERE REN DERED, THEN HE WILL SEGREGATE SUCH AMOUNT AS IT RELATABLE TO TH ESE SERVICES. 10. THE LD. AR CONTENDED THAT THE ASSESSING OFFICE R WHILE COMPUTING INCOME FROM FEES OF TECHNICAL SERVICES AL SO INCLUDED REIMBURSEMENT OF EXPENSES IN THE BASE AMOUNT WHICH, IN HIS OPINION, WAS NOT WARRANTED. IT IS OBVIOUS THAT IF T HERE IS CERTAIN REIMBURSEMENT OF EXPENSES WITHOUT THERE BEING ANY M ARK UP OF ITA NOS.5741/DEL/2010, 5542 & 703 TO 708/DEL/2011 PAGE | 9 ANY NATURE, THEN THE INFERENCE TO BE DRAWN IS THAT NO INCOME WAS EARNED FROM SUCH REIMBURSEMENT AND HENCE SUCH REIMBURSEMENT CANNOT BE INCLUDED IN THE BASE AMOUNT . IF, HOWEVER, THERE IS NO ONE-TO-ONE LINKING OR SOME MAR K-UP IS EARNED, THEN THE AMOUNT OF REIMBURSEMENT IS LIABLE TO BE INCLUDED IN THE BASE AMOUNT. WE DIRECT THE AO TO EX AMINE THE ISSUE IN THIS LIGHT. 11. THE LD. AR ALSO SUBMITTED THAT THE ASSESSING OF FICER WHILE DETERMINING INCOME FROM FEES FOR TECHNICAL SERVICES INADVERTENTLY INCLUDED THE VALUE OF CANCELLED INVOICES. ON A SPE CIFIC QUERY, IT WAS SUBMITTED THAT IF DUE TO ONE REASON OR THE OTHE R, TURBINE IS NOT PROPERLY SUPPLIED/INSTALLED AS PER THE REQUIREM ENTS OF THE CUSTOMERS, THEN THE ASSESSEE HAS TO REDO THE SAME F OR WHICH A FRESH INVOICE IS ISSUED AND THE EARLIER INVOICE GET S CANCELLED. IT GOES WITHOUT SAYING THAT IF AN INVOICE HAS BEEN CAN CELLED, THEN THAT CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPUT ING INCOME. UNDER THESE CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO EXAMINE THIS ASPECT AS WELL AND EXCLUDE THE AMOUNT FROM CANCELLED INVOICES, AFTER PROPER VERIFICATION. ITA NOS.5741/DEL/2010, 5542 & 703 TO 708/DEL/2011 PAGE | 10 12. THE EXERCISE AS DISCUSSED ABOVE CAN BE DONE BY THE AO ONLY IF THE ASSESSEE EXTENDS CO-OPERATION AND FURNISHES ALL THE RELEVANT AGREEMENTS OR OTHER DOCUMENTS AS BE CALLED FOR BY T HE ASSESSING OFFICER FOR DETERMINING THE AMOUNT OF INCOME FROM R ENDITION OF SERVICES. THE LD. AR HAS UNDERTAKEN TO SUPPLY ALL T HE NECESSARY DOCUMENTS AND DETAILS AS MAY BE REQUIRED BY THE AO. IT IS MADE CLEAR THAT IF THE ASSESSEE FAILS TO SUPPLY THE INFORMATION/DOCUMENTS AS REQUIRED BY THE ASSESSING OFFICER, AS HAPPENED DURING THE COURSE OF ORIGINAL ASSESSMENT P ROCEEDINGS, THEN THE OFFICER WILL BE ENTITLED DRAW AN ADVERSE I NFERENCE AGAINST THE ASSESSEE AND PROCEED TO MAKE A FAIR AND REASONA BLE ESTIMATE. 13. THE LD. AR CONTENDED THAT TAXABILITY OF INCO ME FROM FEES OF TECHNICAL SERVICES SHOULD BE CONSIDERED IN THE LIGH T OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF ONGC LTD. VS CIT [2015] 367 ITR 306 (SC) . IN THIS JUDGMENT, THE HON'BLE SUPREME COURT HAS HELD THAT IF IMPARTING OF TRAININ G AND CARRYING OUT DRILLING OPERATIONS FOR EXPLORATION ETC. ARE IN EXTRICABLY CONNECTED WITH PROSPECTING, EXTRACTION OR PRODUCTIO N OF MINERAL OIL, THE DOMINANT PURPOSE OF SUCH CONTRACTS IS FO R PROSPECTING, ITA NOS.5741/DEL/2010, 5542 & 703 TO 708/DEL/2011 PAGE | 11 EXTRACTION OR PRODUCTION OF MINERAL OIL, THOUGH THE RE MAY BE CERTAIN ANCILLARY WORKS CONTEMPLATED THEREUNDER. IT HAS BEEN HELD THAT SUCH PAYMENTS IS TAXABLE U/S 44BB AS FOR PROSP ECTING ETC. OF MINERALS OIL AND NOT U/S 44D OR SECTION 115A AS FEE S FOR TECHNICAL SERVICES. AS THE MATTER OF `TAXABILITY OF INCOME AS FEES FOR TECHNICAL SERVICES HAS ALSO BEEN SENT BACK BY THE HONBLE HIGH COURT, WE DIRECT THE ASSESSING OFFICER TO EXAMINE T HIS ASPECT OF THE MATTER ALSO, IF THE ASSESSEE PRESSES. 14. WITH THE ABOVE OBSERVATIONS, WE REMIT THE M ATTER TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE ABOVE ISS UES AFRESH IN CONSONANCE WITH OUR ABOVE OBSERVATIONS AFTER ALLOWI NG A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 15. IN THE RESULT, ALL THE EIGHT APPEALS ARE ALLOWE D FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- SD/- (BEENA A. PILLAI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT ITA NOS.5741/DEL/2010, 5542 & 703 TO 708/DEL/2011 PAGE | 12 *AMIT KUMAR* DATE:- 31.01.2018 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI